Washington Court of Appeals Heralds New Developments in Damages for an Insurer’s Bad Faith Duty to Defend

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On April 4, the Washington Court of Appeals issued its decision in Unigard Insurance Company v. Mutual of Enumclaw Insurance Company. The case pertains to the scope of damages that may be assessed for an insurer’s bad faith failure to defend and the applicable rate of prejudgment interest. The Court held that where the policyholder did not admit liability or confess judgment in a specific amount, the presumed harm from the insurer’s failure to defend — and therefore the bad faith damages — was the policyholder’s maximum potential liability in the underlying case. The Court also held that the prejudgment interest rate for torts, rather than the rate for contracts, applied to a bad faith and breach of contract case.

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